One coin to rule them all?

Could a $1 trillion coin really solve the national debt ceiling debate?

Although Congress was able to pass an 11th-hour bill to get the United States past the fiscal cliff, the next battle regarding the nation's debt ceiling already is beginning to brew. With little changed in the composition of Congress, many expect this battle to be as difficult as the previous. One work-around that has been suggested is the $1 trillion coin. But, what is it and, more importantly, could it actually avert another showdown between the President and Congress over the nation's debt?

The idea harkens back to a couple of obscure laws from the 1990s that allow the Treasury Department to produce platinum coins of any denomination whenever it wants. The original idea was to allow the Treasury to raise some cash with novelty coins.

But some pundits say the law could allow the Treasury to legally mint coins in whatever denomination it wants and then deposit them into its bank account at the Federal Reserve, in exchange for cash it then could use to pay off its debts. I wonder how Fed Chairman Ben Bernanke would react to being handed a $1 trillion coin.

Such a move would raise questions regarding inflation, naturally. But the same amount of money would be in the financial system whether the Treasury Department borrows the money or mints a giant coint. That doesn't mean expectations of rising inflation would be curbed, and expectations of higher prices can become a self-fulfilling prophecy.

At this point, most experts don't see the "coin threat" really being a viable option because it would be seen as "the executive branch bringing itself down to the House Republican's level," according to Reuters' Felix Salmon.

Instead, it seems far likelier that Obama and the House Republicans will strike another last-minute deal that makes nobody happy.

About the Author

Michael McFarlin joined Futures in 2010 after graduating summa cum laude from Trinity International University, where he majored in English/Communication. With the launch of the new web platform, Michael serves as web editor for the site and will continue to work on the magazine, where he focuses on the Markets and Trading 101 features. He also served as a member of the Wisconsin National Guard from 2007 to 2010. mmcfarlin@futuresmag.com